5 Reasons to Buy a Home and 5 Reasons Not to Buy a Home

5 Reasons to Buy a House

Depending on your financial situation, goals and lifestyle, along with an ever-changing real estate market, you may wonder if buying a house is right for you. These are all important factors to consider before changing your address. To help with your decision, check out five reasons buying a house may be in your best interest.

1. You Have a Down Payment Saved

Coming up with a down payment can be a big hurdle to overcome when buying a home, especially for first-time homebuyers. But if you've saved up and feel you can afford the initial down payment, this might be a good reason to consider buying a home.

Usually, conventional mortgage loans require 20% down to avoid paying private mortgage insurance (PMI). Paid by the borrower, PMI is a type of insurance that protects your mortgage lender against financial loss in the event that you stop paying your mortgage. Some government-backed mortgages, like those from the Federal Housing Administration (FHA) and U.S. Department of Veterans Affairs (VA), require much less down—if anything at all, though you may still pay mortgage insurance. Local programs and grants may also be available to help you with your down payment.

2. Your Credit Is Strong

Your credit can play a big role in buying a house and getting a home loan. Lenders want to feel confident you can afford the monthly mortgage payments, and a primary way they do that is by evaluating your credit during the application process. A good credit score can also qualify you for a low interest rate that can save you thousands of dollars over the life of the loan.

Although credit score requirements can vary based on the type of mortgage and the individual lender, lenders generally require a minimum credit score in the range of 500 to 700 to buy a house. While you may qualify for a mortgage loan with a credit score on the lower end, the higher your credit score, the better your interest rate and terms on your mortgage loan. If you're unsure where your credit stands, check your credit score for free.

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3. Your Debt Is Under Control

Besides considering your credit, lenders also look at your debt-to-income ratio (DTI) when determining your eligibility for a mortgage. Your DTI is the percentage of your monthly income that goes toward paying your debts. A high DTI may indicate that you have a lot of debt, which can stretch your budget and make it more difficult to make your monthly mortgage payments. A lower DTI will help you qualify for a mortgage.

While you may qualify for a mortgage with a DTI of 43%, many lenders prefer a DTI of 36% or lower.

4. You've Considered Closing Costs and Other Expenses

When you take out a mortgage, you'll likely also have to come up with closing costs—fees, taxes and other expenses typically paid by the buyer. Closing costs usually range between 2% and 5% of the home's purchase price. So, if your mortgage is $400,000, you might pay as much as $20,000 in closing costs. Add in your down payment, and you're talking serious money paid at closing. If you've planned ahead, know what to expect and already have that money set aside, you're in better shape to buy.

You'll also want to factor in property taxes, homeowners insurance, home maintenance costs and utilities when deciding if buying a home is right for you.

5. You Want to Invest in Your Future

Buying a home is an investment in your future. As you make your monthly mortgage payments and, ideally, the value of your home increases, your equity grows.

Later on, you can use your home's equity to upgrade to another house, take out a home equity loan for renovations or borrow against it with a home equity line of credit (HELOC). Additionally, your home can become an asset to pass down to your children, should you so choose.

5 Reasons Not to Buy a House

Besides all the situations when it makes sense to buy a house, there are also wrong times to make this move. Maybe you feel pressured by friends or relatives to buy, you're in a rush because you're afraid interest rates will take a jump or you passed by a house you just can't resist. Other bad situations to buy a home can include:

1. You Got Preapproved

Getting preapproved for a mortgage is a common part of the process of buying a house. However, getting preapproved before you've really begun looking may not be the best idea, as preapproval letters are only valid for a limited time—typically anywhere between 30 and 90 days.

Having a preapproval letter in hand could make you feel pressured to purchase a property before it expires. This may lead to you buying the wrong house for you, or something that's over your realistic budget simply because the bank said you might be able to qualify for a large mortgage.

2. Your Income Isn't Stable

If your income isn't stable, your job is in jeopardy or you're just uncertain about job security in the coming months, this may not be the best time to make such a large investment.

If you can't make the monthly payments once you're in your home, you could lose it to foreclosure. A foreclosure stays on your credit report for seven years from the date of your first missed payment and can hurt your credit even further, making it more difficult to apply for a mortgage in the future.

3. You're Already Strapped For Cash

In August 2022, roughly 45% of people making over $100,000 per year were living paycheck to paycheck, according to a report from financial data and news firm PYMNTS. If that sounds like you, this may not be the right time to buy a home. Besides the upfront costs, a home changes over the years and needs to be regularly maintained. Unfortunately, these costs are unpredictable—the furnace goes out, the roof leaks or you discover termites have tunneled through your foundation.

If you're already struggling to meet your current monthly expenses, challenge yourself to pay down debt and put a chunk away in savings before buying a home. Even if you don't quite make your savings goals, having some money set aside is a win.

4. You Don't Have an Emergency Fund

An emergency fund is a cash reserve specifically set aside for unplanned emergencies. Since you can't foresee the future, having adequate money set aside in a separate fund is essential to cover any unexpected expenses when they happen.

After getting the keys to your new home, you might be surprised when something needs your attention, whether it's homeowners association fees, property taxes or new windows. That's what an emergency fund is all about—being cash-ready to cover those surprises.

That's why it's important to build up your emergency fund first. You can do this by temporarily going on a bare-bones budget or by taking on a 52-week money challenge or a no-spend challenge. They can help to replenish (or build) your emergency fund and make buying a home much more manageable.

5. You Have a Lot of Debt

Signing a mortgage is a long-term commitment—usually 15 to 30 years. That might be longer than anything else you've committed to in the past. It's also an expensive commitment.

If you're already shouldering a lot of debt, especially high-interest credit card debt, make a plan now to pay it down before buying a new home.

Bring It Home

The right time to buy a home depends on your dreams and goals, as well as your finances. It's easy to feel pressured to own versus rent, but both have advantages to consider depending on your personal situation. Life's events are hard to project, so start by thinking about how buying a house may affect you financially. Take steps to gain a firm financial footing now by paying down high-interest debt, improving your financial habits and generally putting your house in order, so when the time feels right, you're ready.